Outsourcing Compliance

March 30, 2022 | RIA Resources

In the previous article we discussed what an outsourced compliance firm can do and walked through the research needed to begin. In this article we will offer some tips on how to have a successful relationship with your CCO. Compliance is complex and time-consuming, so leave it to the professionals. You have plenty on your plate already.

Prepare Your Firm to Outsource

So how do you prepare your firm to outsource compliance? Scott P. Gill, MBA, IACCP, owner of Synergy RIA Compliance Solutions, has some recommendations to ensure a smooth transition:

If you have multiple custodians for your client relationships, this increases the cost of using an outsourced CCO as each custodian will require a separately managed set of processes. If you can, choose one “primary custodian”.

The amount of documentation might make it tempting to use a third-party cloud storage service. Gill argues that this is a bad idea, and these should only be used as backup. Maintain all your data locally, making it easier for regulators and compliance officers to find what they need.

Communication breakdowns were one of the chief reasons the SEC found for failure of outsourced CCOs. Defining an internal communication plan is imperative to keep regulators happy as well as ensure that staff know who to call when trouble strikes. If your CCO doesn’t know the right person to contact with questions, you’re playing with fire. The days of just “walking across the hall” are long gone, especially with WFH becoming prevalent.

Choosing a robust CRM that is designed for RIAs (such as Redtail, Wealthbox or Junxure) is a step you shouldn’t overlook as part of preparing for outsourcing compliance. Your CRM provides a single source of truth for both your new compliance partner and regulators.

According to Adrian Johnstone, CEO of Practifi, “These platforms find innovative ways to blend compliance with day-to-day business dynamics. As a result, meeting compliance requirements becomes a part of the advisory process, not a separate process.”

You can expect to pay between $3,000-$5,000 on compliance annually. While there may be cheaper options, we would not recommend selecting a compliance vendor solely based on price. You need a full-service firm, and as you ask more of them, the price will increase.

Once you’ve gotten yourself established, it’s going to make sense to look to hire an in-house CCO.

Summary

We strongly recommend startup RIAs outsource their compliance to a qualified, reliable provider. You will have a lot on your plate early on. Compliance is one of the most important parts of your independent RIA journey and developing good compliance habits and strategies now will pay off in a big way as your firm grows.

If your firm grows large enough, you’ll want to consider hiring a CCO to handle everything in-house. However, for now, most of your hard work is done and you’re ready to launch!

The Shoestring RIA is a series of articles written and published by the BillFin^TM team at Redi2 Technologies designed to help RIAs as they start out on their own. We recognize just how challenging it is to venture out and build a successful business. Our articles will be focused on helping these new businesses with a wide range of topics.